A new dawn for shipping in the UAE

In March 2024, Federal Decree Law No. 43 (2023) on Maritime Law will have the force of law in the UAE (the New Law), repealing and replacing Federal Law No. 26 (1981) (the Old Law).

In this article, we look at three key areas of development under the New Law: (i) UAE-registered vessel ownership; (ii) vessel registration; and (iii) vessel arrest and letters of undertaking (LOUs).

UAE-registered vessel ownership

Under the Old Law, ownership was only permitted where the individuals concerned were of UAE nationality. Where the owning entity was a company, the general position was that the majority of its shareholders and directors had to be of UAE nationality.

The New Law widens the vessel ownership eligibility criteria to: (i) entities with a management office, business centre or otherwise having a domicile within the UAE; and (ii) individuals with UAE nationality or that of another GCC country.

This means that being an Emirati national is no longer a prerequisite for vessel ownership. UAE-registered vessels can now be owned by entities with domicile in the UAE, or by UAE and Gulf Cooperation Council nationals.

Vessel registration

The position on vessel registration is yet to be made clear. Articles 27–34 and 43 of the Old Law set out the existing registration procedure. Article 13(3) of the New Law states that the new procedure will be set out in the ‘Implementing Regulation’, which is yet to be released.

What is known is that newbuild vessels must be approved by the Ministry of Energy and Infrastructure, who, pursuant to Article 9(3) of the New Law will create a special register in which shipbuilding contracts are to be registered.

Vessel arrest and the power of a P&I Club LOU

There are some very well-known favourable jurisdictions for ship arrest. These include South Africa, due to the ability to effect associated ship arrest and/or pierce the corporate veil; and Hong Kong, because there is no requirement for the provision of counter-security.

Whilst the New Law doesn’t go as far as these jurisdictions, the UAE is now aligned with the 1999 Arrest of Ships Convention, which widens the potential actions afforded to a creditor and also increases the claims for which vessels can be arrested in the UAE. This differs to the Old Law, which is derived from the 1952 International Convention Relating to the Arrest of Sea-Going Ships which had more restrictive provisions.

Attempted vessel arrests in the UAE may increase as a result of this development. However it is perhaps unlikely that this will deter vessels from calling at UAE ports given that the provision of counter-security is required. Article 56 of the New Law requires the arresting party to provide a financial guarantee in a form acceptable to the UAE Courts in order to proceed with an arrest application.

Linked to this, and in a much welcomed move, the UAE Courts will now accept the globally recognised method of releasing a vessel from arrest via the provision of P&I Club LOU. Under the Old Law, only cash deposits, bank guarantees or bank manager’s cheques enabled the lifting of provisional arrest orders.

It is thought that the UAE’s acceptance of a Club LOU should help thwart spurious litigation and provide a counterbalance to the wider scope for arrest under the New Law based upon the 1999 Arrest Convention.

Comment

Overall, the New Law is welcomed as a significant development in modernising the UAE’s legal framework in the maritime sector and emphasises its position as a key maritime hub in the region. It will also provide more certainty and clarity to businesses in the UAE and globally on key maritime issues, including that of arrest, which should pave the way for further business development in the region.

Read other items in Marine Brief - March 2024